Shriram Transport Finance 11.75% NCDs – October 2013 Issue

by Shiv Kukreja on September 30, 2013

in Uncategorized

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Shriram Transport Finance Company Limited (STFCL) will be launching its public issue of non-convertible debentures (NCDs) from October 7th i.e. next Monday. The company plans to raise Rs. 500 crore with this issue, including a green-shoe option of Rs. 250 crore.

This is the second such public issue of this financial year from STFC, as the company raised Rs. 750 crore from its first issue in July and the issue got preclosed in just seven days time on July 24th. The current issue will get closed in a couple of weeks time on October 21st, if it does not get preclosed this time again or extended by the company beyond this date.

Shriram Transport Finance offered 10.90% per annum for 36 months and 11.15% per annum for 60 months in its last issue to the individual investors. This time the rates are 35 basis points (or 0.35%) higher at 11.25% per annum for 36 months and 11.50% per annum for 60 months. The company did not offer 84 months option in its first issue, which is there in its current issue. But, there is no monthly interest option this time.

Before it starts getting repetitive again, here you have the table having the details about the tenors and the interest rate options.

As you can check from the table above, there is an additional incentive of 0.50% p.a. with 36 months option, 0.75% p.a. with 60 months option and 1% p.a. with 84 months option. Unlike tax-free bonds, this additional incentive is available to the individual investors irrespective of the size of their investment amount.

The company is offering its highest rate of interest @ 11.75% p.a. for an investment period of 84 months, which is a very long period for me to stay invested with a private company. Personally, I would avoid 84 months option.

Categories of Investors – The investors have been classified in the following four categories and the individual investors fall in Category III as well as Category IV.

  • Category I – Institutional Investors
  • Category II – Non-Institutional Investors
  • Category III – High Net-Worth Individuals, including Hindu Undivided Families (HUFs)
  • Category IV – Retail Individual Investors, including Hindu Undivided Families (HUFs)

Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Allocation Ratio – 50% of the issue is reserved for the Retail Individual Investors (RIIs) i.e. the individual investors investing up to Rs. 5 lakhs and 30% of the issue is reserved for the High Net-Worth Individual Investors (HNIs) i.e. the individual investors investing above Rs. 5 lakhs. 10% of the issue is reserved for the Institutional Investors and the remaining 10% is for the Non-Institutional Investors (NIIs). The allotment will be made on a “first come first serve” basis.

Minimum Investment – Like last time, the company has decided to keep the minimum investment requirement at Rs. 10,000 again i.e. 10 bonds of face value Rs. 1,000 each.

Listing – STFC will get these bonds listed on the National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE). Investors can apply for these bonds either in physical form or in demat form, at their own discretion.

Allotment and subsequent listing both are happening super fast these days as we have seen it in the case of REC tax-free bonds. The company will get the NCDs allotted and listed within 9 working days from the date of closure of the issue.

Rating & Nature of the NCDs – CRISIL has rated these NCDs as ‘AA/Stable’ and CARE has assigned a rating of ‘AA+’ to this issue. Moreover, these NCDs are ‘Secured’ by a first charge on an identified immovable property and specified future receivables of the company.

Taxability & TDS – The interest earned on these NCDs will be taxable as per the tax slab of the investors. TDS will be applicable if the NCDs are taken in the physical form and the interest amount exceeds Rs. 5,000 in a financial year. But, if you take these NCDs in your demat account, the company will not deduct any TDS from the interest income.

Interest on Application Money & Refund – Investors will get interest on their application money @ 9% p.a., from the date of investment till the deemed date of allotment, and @ 4% p.a. on the amount liable to be refunded.

Interest Payment Date & Record Date – STFC will make its first interest payment on April 1, 2014 and then on April 1st every year. The record date will be 15 days prior to every interest payment date.

Performance of NCDs issued in July – It is not surprising for me to see all of the NCDs, issued in its first issue in July, to trade below the face value of Rs. 1,000. The reason being the interest rates have risen since then.

STFC-NV, 36 months annual interest option, last traded at Rs. 985 and STFC-NW, 60 months annual interest option, last traded at Rs. 980.10 as on September 27, 2013. Allotment date of these NCDs was August 1, 2013 and it has been almost two months since then. So, the yield on these NCDs must be ruling around the coupon rates offered by the company in the current issue.

IIFL NCDs Issue vs. STFC NCDs Issue vs. HUDCO Tax-Free Bonds

If some of the investors were comfortable investing with the just concluded IIFL NCDs but somehow missed it, then I think they can consider investing in this issue. My personal opinion is that the business model of Shriram Transport Finance is better than the business model of India Infoline Finance Limited (IIFL) and probably its credit rating also suggests that.

But, I would still say that one should explore the already listed NCDs yielding 13-14% with a maturity period of 1-2 years. I think, with fixed deposits (FDs) or NCDs issued by private companies, the shorter the tenure of your investment is, the better it is.

As explained many times earlier, I think the investors falling in the higher tax brackets should opt for tax-free bonds rather than these taxable NCDs. So, personally I would go for HUDCO tax-free bonds or the upcoming IIFCL tax-free bonds rather than these STFC NCDs.

If you are thinking that I have missed to quote the financial of the company in this post, then you are right, but it is intentional. I did that exercise in my July STFC NCDs post and I don’t want to do that again as those were its latest annual results.

Link to Download the Application Form of Shriram Transport Finance NCDs

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